As EMV Spreads, PIN Debit Networks Air Their Grievances
Walmart isn't the only entity with an axe to grind about how issuers are handling EMV transaction routing.
While Walmart's lawsuit against Visa this week centers on authorization and routing methods, the Debit Network Alliance LLC — a group of independent debit networks — is also taking issue with EMV routing in addressing how terminal software is handling the choices presented to consumers.
The alliance arose two years ago as a product of the fiery debate over governance of the so-called common application identifier, or AID, a coding that was needed to enable EMV debit cards to comply with the Durbin amendment's rule for providing merchants a choice of two or more routing options. Its membership includes NYCE, Co-op Financial Services, Shazam, Discover's Pulse and First Data's Star.
The DNA issued a bulletin to merchants May 11 to warn about how software in their payment terminals may take this decision out of merchants' hands and give it to consumers, who are more familiar with the Visa and MasterCard brands than those behind the alliance. Unlike simply choosing "credit" or "debit," consumers choosing debit would be prompted to choose "Visa," "MasterCard" or "U.S. Debit."
The U.S. Debit choice represents the common AID supported by the alliance's membership, but is a brand that consumers would not recognize and would naturally avoid, the DNA says. The alliance proposes letting merchants choose a default option for PIN debit payments, while allowing the consumer to change that to a signature payment that would go over Visa or MasterCard rails.
"Our concern is that those screens are out there and we want merchants to know they can set it up differently," said Paul Tomasofsky, director of the Debit Network Alliance. "They should be set up for the merchant to make the routing choice, which is their legal right, and even if they pick the common AID, it can go to Visa or MasterCard because they also support that. We are just saying the merchant should pick the common AID [in this case, U.S. Debit]."
The ruling to provide merchants a choice of networks was designed to allow competition in transaction routing, and thus some less expensive options, rather than all transactions automatically going to the most prominent card brand global networks.
Walmart laid down the legal gauntlet with Visa again this week, mainly because of its contention that Visa was requiring Walmart to accept debit transactions with signatures and bypassing PIN if the consumer didn't want to use it. Walmart views such requirements as advocating a far less secure authentication method, as well as assuring more transactions would move through the Visa network.
While the debit networks and Walmart are attacking the routing question from different angles, the common thread is whether the merchants are able to harness the full benefit of the EMV migration, said Julie Conroy, research director and fraud expert with Boston-based Aite Group.
"I think all of this hoopla reflects the fact that making Durbin and EMV work together is kind of like trying to fit a square peg in a round hole," Conroy said. "You can make it work, but the results are far from perfect."
It is understandable that the DNA would be concerned over the impact of the screen prompts because enabling consumers to choose the debit routing "will certainly tip the scales in the favor of signature debit," Conroy added.
That is especially true when the alternative is "U.S. Debit,” Conroy said. "That wouldn’t really even mean anything meaningful to those of us steeped in payments, much less your average consumer."
The problem arises if an acquirer adds the screen prompt functionality through their development kits that interact with the EMVCo kernel certified at the terminal level.
"The acquirers have a lot of influence on the transaction flow and the prompts during the process," said Terry Dooley, executive vice president and chief information officer for the Shazam PIN debit network. "Not all brands require that kind of prompting, but acquirers ultimately decide how to implement the transaction flow."
If the terminal is asking a consumer to choose a routing network with no description of what U.S. Debit means, it goes against "the five years of work the independent networks have put into the common AID and the various white papers we have done on how to use it and license it to allow choice for all transaction types," Dooley added.
Debit cards are being coded to carry at least a common AID, or one that can route transactions to various independent or card brand networks, as well as the network AID for the branded card. It took the payments industry the better part of two years to agree on how to implement the AID in accordance with the Durbin requirement for multiple routing options.
For its part, Visa contends it has not changed any requirements related to whether a consumer should be prompted to choose a routing network, as long as shoppers still can choose between debit and credit.
"There are many ways in which merchants can work with their acquirer partners to configure their terminals to support EMV chip," Visa said in an emailed statement. "Visa does not mandate any particular approach.”
Visa has not provided a statement on its latest legal tussle with Walmart.
Though Visa has argued that other security methods in use today lessen the need for PIN authentication, many observers still see PIN as a vital tool to combat stolen card fraud.
"It is important to remember that here in the U.S. – unlike other areas of the world – chip-enabled card technology is purely designed to authenticate the payment card itself, not the card user, as a PIN is not required for processing," said George Rice, senior director of payments and data security for Hewlett Packard Enterprise.